T.S. Murali vs The Liquidator M/S Helpline ...

Company Appeal (AT)(Insolvency) No. 275 of 2023

[Arising out of order dated 22.02.2023 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court-II) in I.A. No. 951 of 2023 filed in CP (IB) No.35 (ND)/2017)]

IN THE MATTER OF:

T.S. Murali Residing at: G-158, Sector-41, Noida, Uttar Pradesh - 201301 ...Appellant

Versus

Mr. Sarvesh Kashyap, Liquidator IBBI/IPA-002/IP-N00127/2017-2018/10296 Residing at: 7, DDA Market, E-Block, East of Kailash, New Delhi - 110065 ...Respondent No.1

Employees Provident Fund Organisation EPFO Regional Office, Kozhikode (Calicut) Bhavishya Nidhi Bhawan PB No.1806, Eranhipalam (PO), Kozhikode, Kerala ...Respondent No.2

With

Company Appeal (AT) (Insolvency) No. 276 of 2023

[Arising out of order dated 22.02.2023 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court-II) in I.A. No. 224 of 2023 filed in CP (IB) No.35 (ND)/2017)]

IN THE MATTER OF:

T.S. Murali Residing at: G-158, Sector-41, Noida, Uttar Pradesh - 201301 ...Appellant

Versus

The Liquidator, Helpline Hospitality Pvt. Ltd. Mr. Sarvesh Kashyap, Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

1 IBBI/IPA-002/IP-N00127/2017-2018/10296 Residing at: 7, DDA Market, E-Block, East of Kailash, New Delhi - 110065 ...Respondent No.1

R.M. House Keeping, Registered Office at 39/16, Pocket-7, Sector-82, Noida, Gautam Budh Nagar, Uttar Pradesh - 201301 ...Respondent No.2 With Company Appeal (AT) (Insolvency) No. 277 of 2023

[Arising out of order dated 22.02.2023 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court-II) in I.A. No. 1026 of 2023 filed in CP (IB) No.35 (ND)/2017)]

IN THE MATTER OF:

T.S. Murali Residing at: G-158, Sector-41, Noida, Uttar Pradesh - 201301 ...Appellant

Versus

The Liquidator, M/s. Helpline Hospitality Pvt. Ltd. Through Sarvesh Kashyap, Liquidator, 7, DDA Market, E-Block, East of Kailash, New Delhi - 110065 ...Respondent

With Company Appeal (AT) (Insolvency) No. 344 of 2023

[Arising out of order dated 22.02.2023 passed by the Adjudicating Authority, National Company Law Tribunal, New Delhi Bench (Court-II) in M.A No.05/2022 filed in CP (IB) No.35 (ND)/2017]

IN THE MATTER OF:

T.S. Murali Residing at: G-158, Sector-41, Noida, Uttar Pradesh - 201301 ...Appellant

Versus

The Liquidator, M/s. Helpline Hospitality Pvt. Ltd. Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

2 Through Mr. Sarvesh Kashyap, 7, DDA Market, E-Block, East of Kailash, New Delhi - 110065 ...Respondent

Present:

For Appellant: Mr. Abhijeet Sinha, Mr. Apoorv Agarwal, Ms. Neha, Mr. Manav Goyal, Advocates For Respondent: Mr. Sameer Rastogi, Advocate, Mr. Sarvesh Kashyap, Liquidator

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

Aggrieved by the impugned order dated 22.02.2023 passed by the

Adjudicating Authority (National Company Law Tribunal, New Delhi Bench,

Court-II, New Delhi) in I.A. No. 1026/2023, I.A. No. 951/2023, M.A. No. 05/2022

and I.A. No. 224/2023 in C.P (IB) No. 35(ND)/17, four separate appeals have been

filed by the Appellant under Section 61 of the Insolvency and Bankruptcy Code

('IBC' in short).

2. The Appellant in the present case is Shri T.S. Murali, promoter and ex-

Director of M/s Helpline Hospitality Pvt. Ltd. (hereinafter referred to as the

'Corporate Debtor'). Since these appeals have arisen from more or less the same

facts and circumstances, all these appeals have been heard together and are being

decided by this common judgment.

3. In Company Appeal (AT) (Insolvency) No. 344 of 2023, the impugned order

dated 22.02.2023 of the Adjudicating Authority passed in M.A. No.05/2022 has

been challenged. The Adjudicating Authority while disposing of the M.A.

No.05/2022 had vacated the interim stay granted by the Adjudicating Authority

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

3 on the sale of Plot No. C-158, Sector 41, Noida, Uttar Pradesh (hereinafter referred

to as the 'subject property') and directed the liquidator to proceed with open

auction with the minimum reserve/upset price of Rs.1.75 crore.

4. In Company Appeal (AT) (Insolvency) No.275 of 2023, the impugned order

dated 22.02.2023 of the Adjudicating Authority passed in I.A. No.951/2023 has

been challenged. The Adjudicating Authority while dismissing I.A. No.951/2023

held that the Appellant has no locus standi to settle the dues of the statutory

creditors of the Corporate Debtor and rejected the application filed by the

Appellant to place on record copy of settlement of dues with the EPFO Office.

5. In Company Appeal (AT) (Insolvency) No.276 of 2023, the impugned order

dated 22.02.2023 of the Adjudicating Authority passed in I.A. No. 224/2023 has

been challenged wherein the interim stay granted on the e-auction of the subject

property on 16.01.2023 was vacated.

6. In Company Appeal (AT) (Insolvency) No.277 of 2023, the impugned order

dated 22.02.2023 of the Adjudicating Authority passed in I.A. No. 1026/2023 has

been challenged. The Adjudicating Authority while dismissing I.A. No.1026/2023

held that the Appellant being a third party has no locus-standi to file such

applications nor empowered to seek documents/information from the liquidator

or to settle the dues of the creditor on behalf of the Corporate Debtor during

liquidation.

7. For deciding all these Appeals, the necessary facts and sequence of events

being inextricably intertwined, it would be useful to conjointly outline them as

follows: -

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

4  The Corporate Debtor was admitted into Corporate Insolvency Resolution

Process ('CIRP' in short) on 24.04.2017 following admission of a Section 9

application filed by M/s R.M. House Keeping Ltd./Operational Creditor.

 The present Appellant is ex-Director of the Corporate Debtor who resigned

from the position of Director in 2006. The Appellant thereafter continued

as CEO of the Corporate Debtor till initiation of CIRP in 2017.

 Subsequent to initiation of CIRP, the claims of the Operational Creditor were

rejected by the Resolution Professional on the ground that the balance sheet

of the Corporate Debtor did not support the claim. Further, within three

months of commencement of CIRP, the Resolution Professional on raising

the grounds of the unknown whereabouts of the Corporate Debtor, the

Adjudicating Authority allowed initiation of liquidation proceedings on

11.10.2017. The Resolution Professional was appointed as the liquidator.

 During the liquidation proceedings, an interim Forensic Audit Report was

brought on record on 10.11.2018 which was followed by the Final Forensic

Audit report on 02.01.2019.

 The Interim Forensic Audit Report had noticed that the Corporate Debtor

had taken a loan of Rs.36,59,250/- from ICICI vide agreement dated

30.04.2004 for a tenure of 104 months which period ended on 22.07.2013.

The loan was for acquiring asset located at Plot No. C-158, Sector 41, Noida,

Uttar Pradesh. It was also noted that the subject property was bought

through a joint loan taken by the Appellant and the Corporate Debtor in

2004. The said asset was however registered in the name of present

Appellant though he was only a co-applicant of the loan.

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

5  The audit report held that amount for repayment of loan was withdrawn

from the Corporate Debtor's account in respect of the subject property

which amounted to wilful attempt by the Appellant for diversion of funds

from the company account for personal benefits and creation of personal

wealth. The total amount diverted in view of loan statement from ICICI

dated 30.08.2018 was held in the report to be Rs.65,29,836.56/- only.

 The final audit report estimated the value of subject property at Rs. 4 crore.

The audit report observed that the subject property should be transferred

to the Corporate Debtor so that Service Tax due could be recovered from

sale of the subject property to safeguard the interests of Service Tax

Department, Government of India.

 An application was filed by the liquidator on 21.12.2018 before the

Adjudicating Authority vide CA No. 840/2018, praying for recovery of

Rs.65,29,836/- from the account of the Corporate Debtor to pay for the loan

availed for the subject property. The Adjudicating Authority vide order

dated 20.12.2019 had allowed the prayer and directed attachment of the

subject property besides directing the liquidator to take further steps for

public auction of the subject property. Following this order, the liquidator

issued warrants of attachments in respect of the subject property.

 The Appellant thereafter approached the Adjudicating Authority vide CA

No.266/2020 for review/modification of the above order dated 20.12.2019.

However, before the Adjudicating Authority could pass an order thereon,

the Appellant obtained an order from this Tribunal on 13.03.2020 in CA

No.262/2020 staying the taking over of possession of the subject property

until disposal of CA. No. 266/2020 by the Adjudicating Authority. Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

6  The Adjudicating Authority by way of a detailed order dismissed the review

petition in CA No.266/2020 on 26.02.2021 and confirmed its earlier order

of 20.12.2019. This order was again challenged by the Appellant before this

Tribunal vide CA No.234/2021. However, the said appeal was dismissed by

this Tribunal on 18.10.2022.

 The Appellant thereafter approached the Hon'ble Supreme Court and filed

Civil Appeal No.8362 of 2022 but the same was also dismissed on

28.11.2022.

 The Appellant thereafter approached the Hon'ble High Court of Delhi by

filing WP(C) No.17431/2022 for quashing the e-auction notice allowed by

the Adjudicating Authority. The said writ petition was remitted back by the

Hon'ble Delhi High Court to the Adjudicating Authority on 20.12.2022 for

its consideration on the ground that Adjudicating Authority had requisite

jurisdiction to deal with the same.

 The Appellant had filed another Writ Petition No. 232/2023 before the

Hon'ble High Court of Delhi which was also disposed of on 09.01.2023

directing the Appellant to give keys of the subject property to the Liquidator

on 23.01.2023. An undertaking from the Appellant recording that keys

would be handed over was also taken.

 Subsequently, the Writ Petition No. 17431/2022 filed before the Hon'ble

Delhi High Court which was transferred to the Adjudicating Authority as

M.A. No.05/2022 was dismissed on 22.02.2023. The Adjudicating

Authority rejected the application filed by the Appellant challenging the

auction process and passed orders vacating the stay on the sale of subject

property. The liquidator was directed to proceed with open auction of Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

7 subject property with minimum reserve price of Rs.1.75 crore. The same

impugned order also dealt with the three other IAs and aggrieved by this

impugned order, the Appellant has preferred this clutch of appeals.

8. It will be useful at this stage to note the prayers made and relief sought in

the above-mentioned appeals.

344/2023

a) Pass an order setting aside the Impugned Order dated 22.02.2023

passed by the Hon'ble Adjudicating Authority in M.A. No. 05(ND)/2022

filed by the Appellant in CP(IB) No.35(ND)/2017;

b) Pass an order to Set aside the e-auction notice which had been

published by the Respondent in four daily newspapers in respect of the

property bearing no. G-158, Sector-41, Noida, Dist. Gautam Buddha

Nagar, UP-201301;

c) Grant stay on the e-auction notice for property bearing no. G-158, Sector-

41, Noida, Dist. Gautam Buddha Nagar, UP-201301 which had been

published by the Respondent in four daily newspapers till final disposal

of main Petition;

d) In the alternative, grant ad-interim stay on e-auction and allow the

Appellant to pay an amount of Rs.40,000/- per month as rent to reside

in the property bearing no. G-158, Sector-41, Noida, Dist. Gautam

Buddha Nagar, UP-201301 until the instant Appeal is pending

adjudication before this Hon'ble Appellate Tribunal;

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

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e) Grant ad-interim stay on further proceedings in the main Company

Petition, i.e., CP(IB) No.35/ND/2017;

f) Pass any other such further orders as deemed fit in the facts and

circumstances of the present case.

275/2023 a. Pass an order setting aside the Impugned Order dated 22.02.2023

passed by the Hon'ble Adjudicating Authority in I.A. No.951/(ND)/2023

filed in CP(IB) No.35(ND)/2017;

b. Pass an order directing the Hon'ble Adjudicating Authority to make on

record the Settlement/DD drawn by Mrs. Rema Murali and Mr. T.S.

Murali in favour of RPF Commissioner, Kozhi Kode for settlement of its

claim in the IA No.951 of 2023 by the Appellant herein and;

c. Pass an order to direct the Liquidator to rectify the Stakeholders

Consultation Committee list in view of the settlement with EPFO;

d. Grand ad-interim stay on e-auction of the attached property of the

Appellant, i.e., G-158, Sector-41, Noida, UP; and,

e. Pass any other such further orders as deemed fit in the facts and

circumstances of the present case.

276/2023

a) Pass an order setting aside the Impugned Order dated 22.02.2023

passed by the Hon'ble Adjudicating Authority in I.A. No.224(ND)/2023

filed in CP(IB) No.35(ND)/2017;

b) Grant continuation of stay on the e-auction of the property bearing no.

G-158, Sector-41, Noida, UP;

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

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c) Grant ad-interim stay on e-auction of the Property bearing no. G-158,

Sector-41, Noida, UP and further proceedings in the CP(IB) 35 of 2017;

d) In the alternative, Grant ad interim stay on the e-auction of the Property

bearing no.G-158, Sector-41, Noida, UP and allow the Appellant to pay

rent for the mentioned property until the Auction is undertaken;

e) Pass any other such further orders as deemed fit in the facts and

circumstances of the present case.

277/2023 a. Pass an order setting aside the Impugned Order dated 22.02.2023

passed by the Hon'ble Adjudicating Authority in I.A. No.1026(ND)/2023

filed in CP(IB) No.35(ND)/2017;

b. Pass an order directing the Liquidator of the Corporate Debtor to place

on record the documents sought in the IA No.1026/2023 by the

Appellant herein and;

c. Grant ad-interim stay on e-auction of the attached property of the

Appellant, i.e, G-158, Sector-41, Noida, UP;

d. Pass any other such further orders as deemed fit in the facts and

circumstances of the present case.

9. The Learned Counsel for the Appellant making his submissions admitted

that both the Corporate Debtor and the Appellant were co-applicants for a loan of

Rs.36,59,250/- for a tenure of 8 years availed from ICICI for purchasing the

subject property of which the Appellant had already repaid the entire amount of

Rs.65,29,836/- which included both the principal amount and interest

component. It was further stated that the Appellant had brought to the notice of Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

10 the liquidator the settlement of payment of Rs.65,29,836/- along with a request

to remove the subject property out of the liquidation asset but the same was

rejected by the liquidator. This fact of repayment of entire principal amount with

interest by the Appellant has been ignored by the liquidator and wrongly insisted

that the subject property should be transferred in the name of the Corporate

Debtor.

10. Assailing the impugned order, the Learned Counsel for the Appellant

contended that the conduct of the liquidator was antithetical to the preamble of

the IBC which is maximization of the value of assets in a time bound manner. It

was contended that the liquidator acted in a mala-fide manner with ulterior motive

to lower the reserve price from that of the valuation of the subject property as

discovered by the forensic report. Though the forensic report had valued the

subject property at Rs.4 crore, the liquidator had deliberately minimized the

liquidation value. It was further asserted that the Adjudicating Authority ignored

the fact that the liquidator was insistent on auctioning the subject property by

undervaluing the same and that it wrongly allowed the reserve price at Rs.1.75

crore instead of Rs.4 crore in the auction of the subject property which was

contrary to its earlier order dated 20.12.2019 wherein it had directed the

liquidator to maximize the liquidation value of the asset.

11. It has also been submitted that the Adjudicating Authority failed to consider

the fact that the Corporate Debtor had altogether four statutory creditors only and

that out of them, the Appellant had settled the dues of EPFO and the Income Tax

Department and that they were in the settlement process with the third statutory

creditor i.e., ESIC, wherein the settlement process was placed before the Hon'ble Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

11 Delhi High Court. It was stressed that though the Appellant had been constantly

approaching the statutory creditors so as to settle their dues, the liquidator had

been deliberately blocking every possible attempt of settlement step taken by the

Appellant. It was also submitted that the Adjudicating Authority in the impugned

order has also been equally non-appreciative of the bonafide efforts made by the

Appellant to settle the claims of the Corporate Debtor.

12. Advancing his arguments further, it was submitted that though the

Appellant had made an express desire to settle with the fourth creditor i.e., the

GST Department, he has been unable to do so since the liquidator rejected their

request to share the relevant documents required for the purpose of settlement.

It was vehemently argued that the action of the liquidator was violative of the

intent of the IBC which is to resolve the companies from their distressed financial

conditions and not to drive them into liquidation.

13. Submitting further that the Appellant being the promoter, shareholder,

founder and ex-director of the Corporate Debtor and having been involved in the

day-to-day management of the Corporate Debtor till 2017, the Adjudicating

Authority erred in holding the Appellant as a third party. It is the Appellant who

had handed over the assets, financial records etc. to the liquidator upon initiation

of liquidation proceedings. Moreover, at a time when the Adjudicating Authority

ordered the attaching of the subject property which is the sole residential property

of the Appellant, the questioning of locus-standi of the Appellant at the same time

is riddled with contradictions. Hence the Adjudicating Authority by dismissing the

applications filed by treating the Appellant as a third party is erroneous.

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

12

14. Reliance was also placed on the decision of Hon'ble Supreme Court in

"Vallal RCK v. Siva Industries & Holdings Ltd (2022) 9 SCC 803 where the

promoter of the Corporate Debtor was allowed to propose a settlement to the

Committee of Creditors ('CoC' in short). It was therefore contended that the

Appellant in the present case also enjoyed the authority to propose a settlement

to settle claims of the creditors of the Corporate Debtor. It was also pointed out

that in Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd. (2000) 5

SCC 515, it has been held by the Hon'ble Apex Court that the Board of Directors

continue to hold residuary powers for the benefit of the company including its

rehabilitation despite appointment of liquidator. Attention has also been adverted

to the judgment of the Hon'ble Supreme Court in Vijay Kumar Jain vs.

Standard Chartered Bank and others (2019) 20 SCC 455 wherein it observed

that the erstwhile Board of Directors are not members of the CoC but have a right

to participate in each and every meeting held by the CoC.

15. It has also been contended that when the liquidator as erstwhile Resolution

Professional rejected the Section 9 application of the Operational Creditor, the

CIRP proceedings should not have survived thereafter having become infructuous.

The liquidator while rejecting the claim of the Operational Creditor ought to have

filed an application under Section 65 of the IBC against the Operational Creditor

for fraudulently initiating insolvency proceedings. It has therefore been alleged

that liquidation initiated in 2017 is being pursued by the liquidator merely to

unjustly enrich themselves. However, the Adjudicating Authority missed out this

critical aspect while acceding to the liquidator when he pressed for

commencement of liquidation proceedings.

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

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16. The Learned Counsel for the Respondent/Liquidator refuting the above

submissions of the Appellant has contended that the aforesaid set of appeals have

been filed with the ulterior motive to delay and derail the liquidation process of

the Corporate Debtor and to grab the subject property which is already under the

illegal possession of the Appellant. An application under Section 66 of IBC has

been filed against the Appellant for acquiring the subject property by using the

funds of the Corporate Debtor and fraudulently recording the same in his own

name.

17. It is the contention of the liquidator that funds were withdrawn from the

company account which has been treated as siphoning of money and cheating,

fraud, and mis-representation of company's financial position in the forensic audit

report. It has also been observed in the said audit report that the total amount

diverted is Rs.65,29,836.56 and therefore liable to be recovered with 18% interest

from the erstwhile Director of the Corporate Debtor. The report also noted that

the Corporate Debtor evaded Service Tax of Rs.3,91,04,886/- for which the GST

Department levied a penalty of Rs.4,13,29,014/- aggregating Rs.8.04 crore.

18. Pointing out that the claim of the statutory creditor's percentage-wise dues

was EPFO (0.07%), Income Tax Department (1.25%), ESIC (2.45%) and CGST

(96.223%), it was asserted that the major statutory creditor is CGST with whom

no settlement has been achieved so far and the total outstanding Service Tax due

including penalty is Rs. 8.04 crore. Further, it was contended that the Appellant's

claim of settlement with EPFO and Income Tax Department is incorrect as these

stakeholders had neither withdrawn their claim nor provided any no-objection

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

14 certificate to the liquidator. Further the petition filed by the Appellant before the

Hon'ble Delhi High Court in respect of settlement of dues qua ESIC have also not

been pressed and still pending.

19. It has also been submitted that the liquidator called a meeting of the

Stakeholder Consultation Committee ('SCC' in short) to discuss the possibility of

settlement. However, the SCC meeting which was attended by representatives

from GST, EPFO and ESIC had declined to accept the settlement. It was submitted

that during this meeting held on 02.09.2022, the authorized representative of

CGST had informed that the current market value of the property is more than

the amount offered by the Appellant and therefore they did not want to settle the

matter with the Appellant but preferred to go through public action and that this

view was shared by other members also. The Learned Counsel of the liquidator

therefore contended that the Appellant by making settlements which were not

acceptable to the statutory creditors was only delaying the completion of

liquidation proceedings and that the creditors are suffering by way of increase in

the liquidation cost. Hence, it was contended that the liquidator had proposed

auction of the subject property so that the Government can recover the sum from

the sale thereof as recommended in the interim forensic audit report as placed at

Annexure A-8 in Appeal Paper Book in CA-344/2023.

20. It was further submitted that the Appellant is not authorized to make any

settlement on behalf of the Corporate Debtor in terms of the provisions of the IBC

and the rules and regulations framed thereunder. It has also been claimed that

third party/shareholders are not allowed to settle claim of the creditors on the

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

15 behalf of the Corporate Debtor as held by this Tribunal in Company Appeal (AT)

(Ch) (Ins.) No.142 and 174 of 2022.

21. We have duly considered the arguments and submissions advanced by the

Learned Counsel for the parties and perused the records carefully.

22. The moot point for consideration is whether the liquidation proceedings

should be allowed to proceed or whether an opportunity with a strict time-frame

can be given to the Appellant to settle the dues of the Corporate Debtor in the

interest of justice, fairness and equity.

23. There is no quarrel over the fact that the Corporate Debtor had taken a loan

of Rs.36,59,250/- from ICICI on 30.04.2004 for acquiring the subject property

and that the said asset is registered in the name of present Appellant though he

was only a co-applicant of the loan. It is also a factual statement that the forensic

audit report while estimating the value of subject property at Rs. 4 crore had also

observed that the subject property should be transferred to the Corporate Debtor

so that Service Tax due could be recovered from sale of the subject property to

safeguard the interests of stakeholders particularly the Service Tax Department,

Government of India.

24. We further notice that the final forensic audit report dated 02.01.2019 has

confirmed diversion of fund from Corporate Debtor to the personal estate of the

Appellant. It is the case of the liquidator that the forensic audit report having

noted that the total amount diverted along with interest is Rs.65,29,836.56 and

that the Corporate Debtor had evaded Service Tax of Rs.3,91,04,886/- for which

the GST Department levied a penalty of Rs.4,13,29,014/- aggregating Rs.8.04

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

16 crore. That being so, the Learned counsel for the liquidator contended that it was

only reasonable that the subject property should be transferred to the Corporate

Debtor so that dues of the statutory creditors could be recovered from sale of the

subject property. The liquidator had therefore prayed for initiating liquidation

proceedings and issue of warrants of attachment of the subject property which

has been allowed by the impugned order.

25. The Learned counsel for the Appellant submitted that the claim of EPFO

amounting to Rs.62,232/- has been settled on 27.02.2023; claim of Rs.1,23,290/-

of the Income Tax Department has been settled on 16.02.2023 and settlement

with ESIC has also been allowed by the Hon'ble High Court of Delhi in its order

10.03.2023. The liquidator has however not acknowledged that the dues of these

statutory creditors have been settled and that such denial to place the record the

settlement of dues with statutory creditors goes against the principles of natural

justice. The Appellant has therefore contended that the liquidator has been

deliberately trying to defeat the settlement steps taken by the Appellant to protect

the Corporate Debtor from liquidation by objecting to every endeavour made by

the Appellant to clear the dues of the Corporate Debtor. Stating that the liquidator

is unnecessarily pressing for liquidation thus causing grave injustice to the

Corporate Debtor, it is, therefore, the case of the Appellant that when it is willing

to settle all dues of the statutory creditors, it should be given a chance to

extinguish the claims rather than allow the auction process to proceed with the

presently fixed low reserve price.

26. We have taken notice that there were only four statutory creditors of the

Corporate Debtor at the time of initiation of liquidation of the Corporate Debtor. Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

17 We note that all these four creditors of the Corporate Debtor in the present case

are statutory creditors being government departments. In respect of two statutory

creditors, namely, EPFO and Income Tax Department, the amounts due and

payable by the Corporate Debtor have been settled by the Appellant and the

payments made. A copy of the settlement dated 21.01.2023 submitted to the

EPFO office on 27.09.2023 is at Annexure A-2 in Appeal Paper Book No.275 of

2023. As regards, the third statutory creditor namely ESIC, the settlement

proposal was placed before the Hon'ble High Court of Delhi for taking on record.

Thus, prima-facie, the claim of three statutory creditors appears to have been

settled and therefore can be considered to have been more or less extinguished.

The sole surviving statutory creditor is the Department of GST which undisputedly

happens to be the creditor with majority share.

27. Keeping in view that the reserve price for auction of the subject property

has been kept at Rs.1.75 crore by the liquidator, while the claim of the GST

department is Rs.8.04 crore, prima- facie, it appears that even after liquidation,

there is a likely possibility that the dues of this statutory creditor may remain

unmet. We are also inclined to accept the contention of the Appellant that there

is no material on record to show that visible steps have been taken by the

liquidator with the GST department to reduce the interest component on Service

Tax/penalty liability of the Corporate Debtor. While we note that that in the SCC

meeting which was held on 02.09.2022 for the first time after five years since the

initiation of liquidation proceedings, the stakeholders had preferred to go through

the auction mode, yet we find that subsequent thereto three of the creditors had

chosen to settle their dues with the Appellant. Thus, the Appellant having

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

18 successfully met the dues of three statutory creditors, there is no reason to deny

an opportunity to the Appellant to settle the dues of the fourth statutory creditor.

It has also weighed with us that if the dues of GST Department are also cleared

by the Appellant, no useful purpose will be served by pressing ahead with

liquidation.

28. On the issue of locus standi, we find that it has been the contention of the

Respondent that the Appellant lacks the authority to offer settlement proposals to

the statutory creditors. In support of their contention, they have relied on a

judgment in delivered by this Tribunal. In so far as facts of that case is concerned

it related to CIRP proceedings and not to liquidation proceedings and thus clearly

distinguishable. We, therefore, do not find the ratio to help the Respondent in

taking the stand that the Appellant has no role to play in settling the dues of the

statutory creditors and in discharging the liabilities of the Corporate Debtor.

29. We have taken note of the fact that the GST Department for the purposes

of assessment and recovery of service tax has been corresponding with the

Appellant as Director of the Corporate Debtor as is placed on record at Annexure

A-7 in the APB in CA(AT)(Ins.) No.277/2023. It is also an undisputed fact that the

Appellant has been a promoter, ex-Director and CEO of the Corporate Debtor.

Furthermore, when the present creditors are Govt. Departments which have well

laid down mechanism to recover their dues and for this purpose and they have

been following up with the Appellant for clearing of liabilities due from the

Corporate Debtor, it does not stand to reason for the liquidator to question the

locus of the Appellant. For the same reasons, we hold that the Adjudicating

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

19 Authority has committed an error in rejecting the request of the Appellant to take

on record the settlement proposal with EPFO on grounds of locus standi.

30. Keeping in view the peculiar facts of the present case and the ground

situation, we hold that the liquidator should assume a more positive approach in

resolving the distressed position of the Corporate Debtor and not shun the bona-

fide efforts being made by the Appellant in this direction to clear the debt of the

Corporate Debtor.

31. The spirit, tenor and objective of IBC being that of a beneficial legislation

and not penal, we are of the considered view that the Adjudicating Authority

instead of penalizing the Appellant by allowing attachment of the subject property

where he was residing, ought to have given an opportunity to the Appellant to

settle with the fourth statutory creditor rather than straightway allowing the

auction of the subject property.

32. Given that the Appellant has all along been making genuine efforts to settle

the claims of the statutory creditors, we see no harm in giving a chance to the

Appellant to arrive at a settlement with the statutory creditor but we hasten to

add that this settlement has to complete within a limited and stringent time frame.

This would be a step in the direction which would balance the interests of all the

stakeholders. In any case, if the Appellant fails in his endeavours, the liquidation

proceedings will commence.

33. For the foregoing reasons, the impugned order dated 22.02.2023 is set

aside. The e-auction notice published by the liquidator in the newspapers and

warrant of attachment of subject property is stayed. In the interim, the Appellant Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

20 is allowed to settle all dues of the statutory creditors by complying to the following

directions:

(i) The Appellant will submit a full and final proposal for settlement of dues

of all statutory creditors including for those statutory creditors where

the dues have been settled. These proposals shall be submitted by the

Appellant to the liquidator within two weeks of the uploading of this

order.

(ii) The liquidator in turn shall transmit these settlement proposals to the

concerned statutory creditors within a period of 10 days from the date

of receipt for seeking their concurrence/acceptance of the said

proposals. The liquidator shall provide a time-frame of one month to

statutory creditors for their response.

(iii) The response of the statutory creditors will be forthwith communicated

to the Appellant and the Appellant in turn will have to clear all

outstanding dues as per the settlement proposal concurred in by the

statutory creditors within a period of one month from the date of receipt

of the same from the liquidator.

(iv) In the event of any of the statutory creditors not having agreed to the

settlement proposal within the stipulated period, the liquidator shall

proceed with liquidation proceedings and the Appellant will have to

vacate the subject property forthwith. An undertaking to this effect will

be given by the Appellant to the liquidator before sending the settlement

proposals for transmission to the statutory creditors.

(v) In case all the statutory creditors agree to their respective settlement

proposals and payments are made within the above stipulated Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

21 timelines, the liquidation proceedings shall stand extinguished. In such

event, the Appellant shall bear the lumpsum amount of liquidator's fees

& expenses which is fixed at Rs.20 lakhs.

(vi) In case any of the statutory creditors fails to respond to the settlement

proposal, it will be deemed that they have not agreed to the same and

liquidation proceedings will commence forthwith. In such event, the

liquidator shall claim his fees and expenses in terms of IBBI (Liquidation

Process) Regulations, 2016.

All the appeals are disposed of in view of the above terms. Parties shall bear

their own costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) Place: New Delhi Date: 21.04.2023

PKM

Company Appeal (AT)(Insolvency) No. 275 of 2023 Company Appeal (AT)(Insolvency) No. 276 of 2023 Company Appeal (AT)(Insolvency) No. 277 of 2023 Company Appeal (AT)(Insolvency) No. 344 of 2023

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